The controller of Norton Industries has collected the following monthly expense
ID: 2454355 • Letter: T
Question
The controller of Norton Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.
Month
Total
Maintenance Costs
Total
Machine Hours
A. Determine the variable cost components using the high-low method. (Round variable cost to 3 decimal places e.g. 12.250.)
B. Determine the fixed components using the high-low method. (Round answer to 0 decimal places e.g. 2,520.)
$______________
Month
Total
Maintenance Costs
Total
Machine Hours
Explanation / Answer
HIGH - LOW METHOD
Variable cost per unit = Y2-Y1 / X2-X1
where,
Y2 = Total cost at highest level of activity
Y1= Total cost at lowest level of activitiy
X2= No of machine hours at highest level of activity
X1= No of machine hours at lowerst level of activity
X1=320 hours ; X2 =720 hours
Y1=$2860 Y2 =$5830
Variable cost per unit = $5830-$2860 / 720-320
= $2970 / 400
= $7.43 rounded off to two decimal points.
Fixed cost is calculated by subtracting the total variable cost from total cost
$5830-($7.43 x 720) = $2860 - ( $7.43 x 320 )
$5830-$5350 = $2860 - $2380
$480=$480
Fixed cost is therefore, $480
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